Which of the following statements is true? A) If the expected future spot exchan

Question

Which of the following statements is true?

A) If the expected future spot exchange rate value of the foreign currency decreases, there will be international financial repositioning toward foreign-currency assets, thereby causing the domestic currency to depreciate.

B) If the domestic interest rate rises, there will be international financial repositioning toward domestic-currency assets, thereby causing the domestic currency to appreciate.

C) If foreign interest rates increase with, the domestic interest rate remaining unchanged, there will be international financial repositioning toward domestic-currency assets and the domestic currency will appreciate.

D) If the expected future spot dollar per euro exchange rate increases, there will be international financial repositioning toward the dollar-denominated assets, thereby causing the euro to depreciate.

Explanation / Answer

B) If the domestic interest rate rises, there will be international financial repositioning toward domestic-currency assets, thereby causing the domestic currency to appreciate. is True.

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